Netflix confirms gaming push as subs slow

Netflix’s hit original Stranger Things

Netflix has confirmed it will move into gaming having experienced a slowdown in subscriber growth in the past quarter, with subscription losses in North America.

The global streamer, which recently hired gaming industry veteran Mike Verdu as VP of game development, said it will soon offer its subscribers games based on its series and movies, with an initial focus on games for mobile devices.

Meanwhile, it blamed the pandemic for the “lumpiness” in its membership growth, with higher growth in 2020 and slower growth so far this year.

Netflix added a massive 10 million subscribers in the second quarter of 2020 as the Covid-19 pandemic hit, but in the same period in 2021 it added just 1.5 million.

This marks the slowest growth for the streamer for eight years, though it was half-a-million more than it had predicted for the period.

It comes after Netflix attracted two million fewer subscribers than it had projected for the first three months of 2021.

Netflix attributed the slowdown in subscribers to having less new content than expected because of production delays caused by the coronavirus pandemic and to the surge in new members in 2020.

The APAC region represented about two-thirds of the additional subs in Q2, while it lost 430,000 subscribers in the US and Canada (UCAN), which Netflix said it had expected.

“We believe our large membership base in UCAN, coupled with a seasonally smaller quarter for acquisition, is the main reason for this dynamic. This is similar to what we experienced in Q2 2019 when our UCAN paid net adds were -0.1 million. Since then we’ve added nearly 7.5 million paid net adds in UCAN,” the streamer said in its letter to shareholders for Q2 2021.

Netflix finished the quarter with more than 209 million paid memberships, slightly ahead of its forecast, while revenue increased 19% year on year to US$7.3bn and operating income rose 36% year on year to US$1.8bn. Its closest competitor remains Disney+, which has attracted 104 million subscribers since launching in late 2019.

Netflix predicted it will add 3.5 million subscribers in Q3 2021, which is fewer than some analysts had forecast.

The global streamer highlighted the increased competition it faces following the arrival of numerous SVoDs backed by US media giants such as Disney, WarnerMedia, NBCUniversal and Discovery after a period of consolidation.

However, it shrugged off the idea that this consolidation has affected its growth and, while it is “continually evaluating opportunities,” it said it hasn’t been tempted to make a move for a major acquisition.

“We are still very much in the early days of the transition from linear to on-demand consumption of entertainment. The industry has consolidated materially over the years (Time Warner/AT&T, Viacom/CBS, Discovery/Scripps, Disney/Fox, Comcast/NBCUniversal/Sky, etc) and we don’t believe this consolidation has affected our growth much, if at all.

“While we are continually evaluating opportunities, we don’t view any assets as ‘must-have’ and we haven’t yet found any large-scale ones to be sufficiently compelling to act upon,” the streamer said.

Netflix added it also competes with the likes of YouTube, Epic Games and TikTok and committed to improving its service as fast as it could.

“If we can do that, we’re confident we can maintain our strong position and continue to grow nicely as we have been over the past two-plus decades,” it said.

Games will be included in members’ Netflix subscription at no additional cost and the move comes after the streamer experimented with interactive episodes of some of its original series, such as Black Mirror, and games based on sci-fi drama Stranger Things.

Netflix said it views gaming as another new content category, similar to its expansion into original films, animation and unscripted TV.

“We’re excited as ever about our movies and TV series offering and we expect a long runway of increasing investment and growth across all of our existing content categories, but since we are nearly a decade into our push into original programming, we think the time is right to learn more about how our members value games,” the streamer said.